1. Field of the Invention
The present invention relates, in general, to financial transactions, and, more particularly, to systems, mechanisms and methods for processing loans that are secured by an asset such as real property.
2. Relevant Background
Money lending is an essential function in commerce and personal finance. Individuals and businesses borrow money to obtain the goods and services they need when they need them. There is continued emphasis in the financial services industry to lower the burdens and barriers associated with making a loan, especially to high quality borrowers. This is particularly true in the competitive home equity loan market where borrowers favor lenders with quick, low burden loan approval processes.
In general, loan processing comprises a series of steps involving gathering information specific to a given transaction, documenting the gathered information, and forming a loan which can be marketed easily to consolidators. In a residential market high-quality loans that are readily consolidated are referred to as “A paper” or “Fannie-Freddie conforming paper”. About 70–80 percent of the mortgage market involves these high-quality loans. Home equity loans often use a similar grading system such as “A”, “B”, “C”, “D”, and the like.
One of the goals of the lending process for both the lender and the borrower is closing a loan quickly. However, in order to produce high-grade loans, the loan process involves multiple steps to obtain and synthesize information from diverse sources. Also, a variety of individuals from a range of organizations may contributed to the process. As a result, a typical loan process takes several weeks.
Particularly in the case of high-quality loans where the borrower has high credit rating and good statistical ratios and history of paying back loans, there is a great need to streamline the loan origination process. From the lender's perspective, these borrowers are low risk, valuable customers. From the borrower's perspective, there is a perception that a faster loan process is less prone to errors. Both borrowers and lenders view a fast loan process as less expensive to complete. For these reasons both borrowers and lenders are attracted to a loan process that leads to rapid closing while producing quality loans.
Although speeding up the loan process is a significant goal, the process must still generate high-quality results. That is to say, the ultimate loan that is generated must evidence a high assurance that the loan is made to a borrower that will repay the loan. In other words, the process that streamlines the loan origination cannot unacceptably affect the business risk taken by the lender.
Many steps taken in conventional loan processing are perceived to lessen the business risk to the lender. However, it has been found that this perception is often misleading and that these steps do not reduce the business risk of the loan. These ineffective process steps increased cost and delay without a proportionate increase in the value and quality of the loan product produced.
U.S. Pat. No. 5,870,721 involves a system for processing non-secured loans. Hence, this patent does not address the substantial problems associated with collateralized loans. Also, non-secured loans are typically for lower amounts and so the total risk taken by the lender is generally less. In contrast, secured loans require significant documentation to produce high quality marketable loans.
U.S. Pat. No. 5,797,133 also deals with unsecured loans and primarily deals with issues related to obtaining credit approval from a third party source. However, the patent does not describe how the processes of obtaining loan approval are performed or automated by the third party. Also, U.S. Pat. No. 5,797,133 deals with an automated-system that replaces humans in the loan making process in contrast with a computer-aided system that aids a human user in making better, faster loan decisions.
Information that is available to analyze a loan application is of several distinct types. As used herein, the term “direct information” refers to information that is obtained by first-person observation, usually in response to a specific request for the data. Direct information is often expensive and time consuming to obtain and use. Examples include property appraisal reports generated by in-person inspection of the property. Another example is a credit report that, unlike most direct information, can be dynamically generated upon receipt of a specific borrower's identity.
In contrast “indirect information” refers to data that is gathered in mass by information services usually before there is any request for the data. Indirect information includes information that is extracted from data sources as compared to the direct data itself. Examples include property sales databases that store historical and current property sales data for whole communities on an ongoing basis. Indirect information is typically more available than direct information because it is gathered before a specific request is generated.
Another type of information is “derivative information” that is derived and/or inferred from direct and indirect information. Derivative information involves some processing and decision making about the data but is generally as available as the direct or indirect information sources themselves. Examples of derivative information include information derived by applying trending algorithms or other statistical algorithms to historical property sales data.
The mortgage loan industry is currently constrained by a perceived need to obtain direct information supporting a loan application and to verify information provided by borrowers and indirect information sources. As noted above, information sources vary significantly in their availability and the time it takes to access. Reliance on direct information tends to stall the loan process. As in any multi-stage process, stalling at one stage creates significant management difficulties in that work in process (WIP) must be queued, missing information matched with the queued WIP, and WIP continuously scheduled and re-scheduled for completion. These difficulties create “pipeline” fallout that increase processing costs and delay actual loan approval.
Even with the expanding amount of information available through online information sources, public databases and private databases, direct information is time consuming to obtain. Also, verification of indirect information sources, which are more readily available, is time consuming and often requires reference to direct data sources. Most often, derived data is not currently used in loan processing where the lender has a substantial interest in ensuring that the loan will be repaid. A need exists for a method and system for loan processing that makes efficient and effective use of widely available indirect information sources and information that can be derived from such sources.
Loan processing involves several general steps including application, approval, closing and funding. At each stage, a certain amount of attrition occurs in the form of loans for which processing is started, but not completed. Attrition increases costs for lenders because of work that is started but will never generate revenue. These costs are typically passed on to the borrowers that do close loans in the form of increased interest rates and costs. Moreover, loan applications that are not completed may clog the processing pipeline increasing delays and costs generally.
Of these events, closing is typically the most important to the borrower and lender as closing is the point at which a contract exists between the parties to make or complete the loan. Many lenders advertise rapid “loan approval”, but approval is quite distinct from a closing. Often the steps required to move from approval to closing are the most difficult and costly steps in the loan process. Accordingly, many approved loans still suffer attrition and fail to fund. In contrast, very low attrition occurs after closing, usually significantly less than one percent. Funding refers to the final process where funds are actually transferred from the lender to the borrower at which point both parties benefit from the loan process.